Is it just me, or are finance headlines a little… emotionally unbalanced these days? One day you’ve got dire warnings on debt levels, followed the next by cautiously optimistic hope of economic recovery. It’s no wonder readers are confused.
For example, take this gem of a headline, which ran Monday in the Financial Post: Tighter Mortgage Rules Threaten Economy’s Recovery.
According to this piece, CAAMP said that “17% of high ratio mortgages funded in 2010 would not qualify today, including 11% of prospective high ratio homebuyers who wouldn’t qualify under the new 25 year am rule.”
More Good Than Doom and Gloom?
I understand that the numbers may seem daunting to economic worrywarts – but aren’t they precisely the point of this summer’s policy crackdown? Yes, these new rules have dampened the market (especially for the hard-hit first time buyer segment), and in turn the resale market – but I wouldn’t go as far as saying that “a policy-induced housing market downturn creates unnecessary risk that directly affects not just housing but job creation and the economy as a whole”.
Why Restrictions Aren’t Necessarily a Bad Thing
As I’ve said before, the brakes needed to be pumped. Mortgages pretty much went on sale with low interest rates during a time when the housing market was heating up and household debt to income ratios were chart-topping. Toss in the state of the global economy and you’re on thin ice. So if anything, I believe that the government has mitigated risk. After all, would this same group of buyers still be able to afford a home back in the days of the five per cent five-year fixed? Maybe only with the old maximum amortization at 30 years!
It seems Canadians are taking advantage of our stellar economy and sound banking system and then complaining about it. So why hasn’t our housing market crashed and burned like the US as some headlines have warned? In a word – rules. Canadians don’t want to endure what the States went through, however we complain when fiscal policy changes and “rules” stunt our purchasing power; the grass is always greener.
The Next Predicted Rate Increase
Bloomberg has predicted that the Bank of Canada overnight lending rate will increase (ever so slightly) by the third quarter in 2013. So, let’s be prepared for this inevitable move and ensure that we are on top of our debt vs. buried under it.
While we’re on the topic of rule changes, brace yourself for a new set of guidelines directed at insurers next year. That’s right! OSFI has recently stepped into power and has added CMHC to the list of insurers to regulate (already responsible for Genworth MI Canada and Canada Guaranty). Their next order of business is to harmonize the underwriting policies that each use and ensure that they meet a set standard.
And in Happier Headlines
On the flipside comes yesterday’s dose of optimism, as RBC’s latest housing affordability report shows home ownership became MORE affordable in the latest quarter! Both a slight adjustment in home prices and a gain in household income have attributed to increased affordability.
Craig Wright, chief economist at RBC, makes a great point ”The broad affordability picture has been somewhat stationary over the last two years, alternating between periods of improvement and deterioration, resulting in an affordability trend that is, on net, essentially flat,” he stated in a release.
I agree Craig, there is no need to get too caught up in the news. And don’t get me wrong – the media does a great job covering each and every cyclical movement as the economy digests policy changes and consumers react. But my own stance is firmly on the sunny side of the street. I’m still optimistic on where we are and where we’re headed.
RateSupermarket.ca’s Week in Review
Mortgage rates have stayed pretty consistent this week – unlike news headlines – with five-year fixed and all variable rates staying put. Two-year fixed squeaked slightly lower by a basis point to 2.58, three-year fixed dropped by a 11 to 2.64, followed by 10-year fixed dropping five basis points to 3.74.